Most people know by now that Lansing is by far the most significant source of school district funding. Lansing is also the unilateral source of our second largest expense – employee retirement costs. Lansing sets the rates and we pay the bill – a financially lethal combination that puts local school boards in an unenviable predicament.
Last Monday, January 11th, the Grosse Pointe Public Schools Board of Education had a marathon budget planning Work Session that could best be described as miserable. My personal projection is that we will unfortunately have to terminate the employment of over 60 district employees – all of them good people who add value to our mission and who are valued in return. But we cannot ignore our economic reality. The cuts are coming – hard and fast.
We collectively stare down the barrel of our most daunting projected budget shortfall in the history of the district, brought about equally by Lansing’s wretched policy making combined with a Depression-level state economy.
I cannot repeat enough that Lansing is the largest source of funding for every public school system in the state of Michigan. Lansing controls our per pupil revenue. Lansing has cut our per pupil revenue this year resulting in the loss of $3,000,000 and is making plans now for cuts next year that will result in the loss of another $2,200,000. Meanwhile salaries and health care costs rise and student population is shrinking. This is the financial stew that is our sustenance.
The focus in this post is another ever increasing cost which, after salary, is our second largest expense – employee retiree health and pension costs – referred to as the Michigan Public School Retirement Systems, MPSERS. Lansing unilaterally controls the rate of this expense. To put this in perspective, if we receive roughly $10,000 per pupil for school funding, nearly $1,300 of it goes to employee retirement.
Here’s a graphic developed by the Detroit News to project where we are headed in this expense category.
Take a look at the chart below that represents the steady rise of the MPSERS rate over the last 10 years in a slightly different way. Take special note of the real source of the expansion, the Unfunded Accrued Actuarial Liability. This is the greatest peril of defined benefit systems.
I have referenced MPSERS many times, most recently in an entry about employee salaries. The two are inextricably related because the MPSERS rate is applied against salary to calculate the district’s total MPSERS expense. Since we have the highest teacher salaries in the state, we also logically pay more in MPSERS expense per teacher than anyone in the state as well.
You can learn much more about MPSERS in this installment of the Financial Transparency Series, or in this series from the Detroit News. You can think of MPSERS as a public employee version of a 401k, except in this case the employer “matching” contribution is nearly 17% of salary and does not require the employee to match what the employer pays.
Here’s a brief snapshot of the rising cost of MPSERS for Grosse Pointe Public Schools.
Impact of State Mandated Retirement Costs in Contrast to Per Pupil Funding in the Grosse Pointe Public School System
|MPSERS Rate (applied to all salary expenses)||16.72%||16.54%||16.94%|
|Average Cost of MPSERS Per Employee||$11,000||$10,979||$11,636|
|Average Cost of MPSERS Per Pupil||$1,218||$1,263||$1,293|
|Foundation Allowance Funding Per Pupil||$10,128||$10,184||$9,821|
|Change of Foundation Allowance v. MPSERS||$11||($363)|
|Aggregate Impact (applied against enrollment)||$91,949||($2,974,785)|
I could spend many words breaking this chart down, but at a high level and in very non-technical terms, it tells us that Lansing is sticking it to us both coming and going. They control our revenue – and are decreasing it. They control the rate of our second largest expense, MPSERS – and are raising it.
The impact of the two factors in 2009-10 amounts to nearly $3,000,0000 of a massive Lansing unfunded mandate. This article in yesterday’s Chicago Tribune is well worth the read on the topic of unfunded mandates.
Where will that $3,000,000 come from? That was the topic of the Work Session I referenced at the outset. I can assure you that it won’t be pleasant, it won’t be popular, and it will be painful.
“Well, I got one foot on the platform
The other foot on the train
I’m goin’ back to New Orleans
To wear that ball and chain”
In their rendition of “The House of the Rising Sun” The Animals express the applicable lyric above. For local Boards of Education, the platform is the one provided by Lansing policies. The train is the local impact of those policies. As the visual of the song lyric suggests, this is an unenviable position. It’s our ball and chain.
As we continue along this miserable process of bringing to form the local impact of Lansing’s policy decisions, remember this. Your local school board is not the source of this distress, but we must respond to it. The reflex of many will be to shoot the messenger, but that anger is misplaced and unfounded.
I invest in this blog to inform as many people as possible about the stark reality of our condition – hopefully to refine that energy of the inevitable initial anger into constructive and collaborative problem solving energy.
With such an approach, let’s dismount the platform and get fully on the train to financial equilibrium.